Micro-finance to the rural women in India

The moment you talk about Micro-finance one immediately thinks of Grameen Bank of Bangladesh and the legendary Muhammad Yunus. Grameen Bank provides credit to the poorest in rural Bangladesh without any collateral. This credit (unsecured loan) is the most cost effective initiative to fight poverty and develop the social infrastructure in rural areas. Grameen Bank of Bangladesh has 7.5 million borrowers, 97 percent of whom are women. It has 2,500 branches in Bangladesh and provides services to more than 80,000 villages. This has been the single biggest achievement of that country since it’s independence from Pakistan in 1971. Unfortunately, because of the image of Bangladesh around the world, people do not give enough credit to such an outstanding achievement. Something similar is being attempted in India.

“Vikram Akula, 39, is the founder of the 10-year-old SKS Microfinance, which offers micro-loans and insurance to poor women in many rural pockets in India”, reports Arthur J Pais in India Abroad (September 12, 2008). Unlike the Grameen Bank that has issued $6.5 billion to a much larger network, SKS Microfinance has provided only $831 million to 2.7 million women in the poorest regions in 16 states across India. Although the interest rate at 25% sounds rather high to a traditional borrower, it is practical if you consider the hassles a poor borrower has to go through to secure any loan. But an unsecured cash loan is dangerous for the borrower without some insurance against a business failure. SKS Microfinance has taken care of that. The company is set up as an entity for profit and therefore has no problems raising large amounts of money. SKS plans to reach 10 million borrowers by 2010.

SKS Microfinance’s Vikram Akula on Mobile Banking

Microfinance in my opinion is the single largest social security network for the vast rural population on the Indian sub-continent. From Afghanistan to Burma and Tibet to Sri Lanka, the entire region has one of the poorest populations on the planet. Money lenders and loan-sharks exploit the rural folks to the extent that the ultimate result is intimidation and violence against the weakest of the population. Grameen Bank of Bangladesh and SKS Microfinance of Hyderabad, Andhra Pradesh, are the pioneers in Microfinancing. They both have strong language advantage and this model could very easily be replicated in all parts of the Indian sub-continent.